The debt to GDP ratio evolves as per below equation. B₁ B₁-1 Yt Y₁-1 = ii. g) B₁-1 Y₁-1 + G₁ - Tt Y₁ Consider a country with a high debt ratio of 200%, a real interest rate of 2%, while the government is running a primary surplus of 2% relative to output. On the basis of the above equation and given numerical information, answer the following questions: i. What growth rate would be required to keep the debt ratio stable? Explain that if expected growth changes to 2% but real interest rate increases to 6%, Fillim

The debt to GDP ratio evolves as per below equation. B₁ B₁-1 Yt Y₁-1 = ii. g) B₁-1 Y₁-1 + G₁ - Tt Y₁ Consider a country with a high debt ratio of 200%, a real interest rate of 2%, while the government is running a primary surplus of 2% relative to output. On the basis of the above equation and given numerical information, answer the following questions: i. What growth rate would be required to keep the debt ratio stable? Explain that if expected growth changes to 2% but real interest rate increases to 6%, Fillim

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 51P: A government starts off with a total debt of $3.5 billion. In year one, the government runs a...

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A government starts off with a total debt of $3.5 billion. In year one, the government runs a deficit of 400 million. In year two, the government runs a deficit of 1 billion. In year three, the government runs a surplus of 200 million. What is the total debt of the government at the end of year three?
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In 2016, the policy makers of the of Eastlandia projected the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy for the next 10 years under different scenario for growth in the government´s deficit. Real GDP is currently $1,000 billion per year and is expected to grow by 3% per year, the public debt is $300 billion at the beginning of the year, and the deficit is $30 billion in 2016.Complete the accompanying table to show the debt-GDP ratio and the ratio of the budget deficit to GDP for the economy if the government´s budget deficit remains constant at $30 billion over the next 10 years. (Remember that the government´s debt will grow by the previous year´s deficit.)
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